Given Imaging: A Capsule View of GI Diagnostics' Future

Despite all of the recent advances in diagnostic imaging, the small bowel remains a black box with physicians still unable to directly view the roughly 20-foot length of this portion of the gastrointestinal tract. Small bowel direct imaging is currently limited to the first few feet through a traumatic procedure called push enteroscopy. The result of the small bowel's diagnostic inaccessibility is that many patients with conditions that arise in the small intestines are forced to undergo numerous invasive tests of other parts of the GI tract, none of which may produce conclusive results. Given Imaging has taken a futuristic approach to GI imaging by utilizing advances in a number of disparate fields, including visualization, miniaturization, and chip construction, combined with principles taken from Israeli missile design technology. The company has developed an ingestible, grape-sized capsule that transmits direct images of the entire GI tract--including for the first time the small bowel--as the device travels through and eventually is expelled from the body in a procedure called capsule endoscopy. All this while the patient goes about his or her normal daily routine. Capsule endoscopy represents the first major breakthrough in gastrointestinal diagnostic imaging in nearly 25 years. Given has been on the fast track. Less than four years from its founding, the company has obtained product approvals and done a successful IPO. But its biggest challenge remains: to overcome the inertia from the lack of innovation in GI medicine and convince gastroenterologists to adopt this radical new diagnostic tool.

Given's ingestible video capsule for the first time enables direct small bowel imaging. Will physicians take the leap and adopt this radical new diagnostic tool?

by Stephen Levin

• Despite all of the recent advances in diagnostic imaging, the small bowel remains a black box with physicians still unable to directly view the entire roughly 20-foot length of this portion of the gastrointestinal tract. Small bowel direct imaging is currently limited to the first few feet through a traumatic procedure called push enteroscopy.

• The result of the small bowel's diagnostic inaccessibility is that many patients with conditions, the source of which may lie in the small intestines, are forced to undergo numerous invasive tests of other parts of the GI tract, none of which may produce conclusive results because of the inability to view an important section of that anatomy.

• Given Imaging has taken a futuristic approach to GI imaging by utilizing advances in a number of disparate fields, including visualization, miniaturization, and chip construction, combined with principles taken from Israeli missile design technology. The company has developed an ingestible, grape-sized capsule that transmits direct images of the entire GI tract—including for the first time the small bowel—as the device travels through and eventually is expelled from the body in a procedure called capsule endoscopy. All this while the patient goes about his or her normal daily routine. Capsule endoscopy represents the first major breakthrough in gastrointestinal diagnostic imaging in nearly 25 years.

• Given has been on the fast track. Less than four years from its founding, the company has obtained product approvals and done a successful IPO. But its biggest challenge remains: overcome the inertia from the lack of innovation in GI medicine and convince gastroenterologists to adopt this radical new diagnostic tool.

What does the science fiction movie classic, "Fantastic Voyage," with its visually spectacular miniaturized journey through the human body, have in common with state-of-the-art Israeli missile defense design technology? The answer is that the principles of both underlie the first major breakthrough in gastrointestinal (GI) diagnostic imaging in nearly 25 years, a procedure called capsule endoscopy (or enteroscopy) developed by Israeli-based Given Imaging Ltd. , which enables physicians for the first time to view the small bowel directly.

Despite all of the recent advances in diagnostic imaging technology, the small intestines remain what Given's founder and CEO, Gavriel D. Meron, PhD, calls "a 20-foot-long anatomical black box." Before Given came along, physicians were only able to directly see the first few feet of this important part of the GI tract, through a traumatic invasive procedure called push enteroscopy, in which a scope is inserted down a patient's throat. The only other methods for physicians to diagnose small bowel problems are through X-rays, which are indirect and much less than ideal for viewing the overlapping anatomical structure of the small intestines, and surgery, the diagnostic tool of last resort.

The result of physicians' inability to directly view the small bowel is that diagnosing GI problems that may be caused by problems in the small intestines then becomes something of a guessing game. Relying largely on the process of elimination, physicians have patients undergo numerous invasive diagnostic procedures that directly image other parts of the GI tract, such as colonoscopy (colon a/k/a large intestine or bowel), gastroscopy (esophagus and stomach), and push enteroscopy (beginning of the small intestine), as well as indirect imaging tools such as a small bowel X-ray series (using a contrast agent such as barium), in an effort to rule out the source of conditions such as obscure GI bleeding (OGIB), Crohn's disease, chronic diarrhea, irritable bowel syndrome (IBS), and small bowel cancer. The result is that, for many patients, physicians are not able to obtain conclusive diagnostic results. Moreover, these procedures are far from patient friendly.

Given Imaging took advantage of the latest developments in a number of disparate fields, including imaging, miniaturization, and chip design, and combined those with visualization technology used in missile design technology, to develop an ingestible, grape-sized capsule called the M2A (the name derives from the course the capsule follows—from mouth to anus) and the latest iteration, the M2A Plus. The capsule is able to image the entire GI tract, but is most useful in providing the first means to directly view the small bowel, which is the application for which Given Imaging has received regulatory approval.

The company's accomplishments to date have been impressive and rapid. Less than four years after its founding, Given Imaging has brought a successful product to market, received marketing approval in the US and more than 30 other countries, and did a successful IPO at a time when the US public market had little interest in medical device companies [See Deal]. Yet Given's biggest challenge remains: to overcome the inertia resulting from the lack of innovation in GI medicine and convince gastroenterologists to adopt this radical new diagnostic tool.

Crossing the Final Frontier

Directly imaging the small bowel is a challenge that gastroenterologists have long been trying to solve—some call it the final frontier in GI diagnostic imaging. Indirect imaging tools like X-rays have proven unsatisfactory for several reasons. As noted, the overlapping anatomical configuration of the small intestine makes visualization difficult as a general matter, requiring multiple exposures, and for diagnostic purposes, this difficulty is compounded by an X-ray's inability to image the mucosa, where many GI lesions reside. As a result, barium small bowel studies have been shown almost completely ineffective in detecting flat vascular lesions and only slightly better at flagging raised lesions. Radiology produces a very low diagnostic yield, less than five percent. "More than one million patients just in the US go through this process each year with very few of them getting a diagnosis," Gavriel Meron claims. Physicians are also hesitant to prescribe GI X-ray studies because of the patient discomfort that results from preparing for these tests, and out of reluctance to expose patients, particularly women of child-bearing age, to multiple abdominal X-rays.

There are also serious limitations to current methods of directly visualizing the GI tract, particularly when it comes to the small intestine. Colonoscopy is effective in viewing the lower portion of the GI anatomy, the large bowel, and gastroscopy can capture images of the upper portion, the esophagus and stomach. But when it comes to imaging the intermediate GI area—the small bowel—gastroenterologists remain largely in the dark because the only available test—push enteroscopy—can, at best, capture the first third of the small intestine. The test requires partially sedating the patient and then inserting a flexible endoscope through the patient's mouth and threading it down to the beginning of the small intestine. Push enteroscopy is a difficult and lengthy procedure for physicians, and is not appropriate for many patients. There is also a high degree of patient discomfort, both during and after the procedure. In 1987, a new test called sonde enteroscopy, in which the endoscope is inserted through the patient's nose, became the first non-surgical diagnostic modality theoretically capable of directly imaging most of the small bowel. However, gastroenterologists found they could only visualize the entire small bowel mucosa 50-80% of the time. Indeed, sonde enteroscopy proved so difficult to perform, requiring a 6-8 hour procedure, and was so uncomfortable for patients, that its former physician champions have pronounced sonde dead.

So for an estimated 19 million US patients suffering from conditions emanating from small bowel disorders, before capsule endoscopy, push enteroscopy was the best diagnostic tool gastroenterologists could offer. And because of the difficulties associated with that procedure, Gavriel Meron estimates that only 1-1.5 million push enteroscopies are performed per year, resulting in a large unmet clinical need. The largest patient group is those with IBS, which Meron estimates at 15.4 million, with another 3.1 million patients suffering from chronic diarrhea. Meron pegs the potential US diagnostic market for small bowel disorders, including OGIB, Crohn's disease, and cancer, at around $8.5 billion.

"The small bowel is a difficult diagnostic area," concurs David Cave, MD, PhD, chief of gastroenterology at St. Elizabeth's Medical Center and professor of medicine at Tufts University School of Medicine in Boston, MA. "More often than not, we have to resort to surgery in patients suspected of having small bowel pathology in order to pass a scope through that region, and that's a pretty invasive thing to do if you haven't got a specific target in mind." The fact that there remains a significant portion of the GI tract that cannot be viewed directly without surgery flagged a huge potential opportunity for Gavriel Meron, but it took the confluence of major technological breakthroughs in several disparate areas to enable Given Imaging to develop capsule endoscopy.

From Missiles to Capsules

While the idea for the M2A capsule sounds like something out of a science fiction writer's imagination, the real source of this technology is just as surprising—Israeli missile research and development. The father of capsule endoscopy is Gavriel Iddan, DSc, a mechanical engineer who specialized in designing imaging systems for so-called smart missiles such as the Popeye missile, which can be precisely targeted using advanced visualization technology. Now Given Imaging's chief technology officer, Iddan then headed the electro-optical design section of Rafael, the Israeli armament development authority—essentially the R&D arm of the country's Ministry of Defense (MOD).

Iddan became interested in medical imaging during several sabbaticals he took from Rafael in the '80s and early ‘90s to work in this area for Elscint Inc. and Eastman Kodak Co. After a colonoscopy experience of his own, Iddan became particularly interested in developing a miniaturized imaging system that could be housed in a tiny missile that could be swallowed and passed through the GI tract, transmitting images along the way. Upon learning of the particular difficulty in imaging the small intestine, Iddan decided to concentrate his efforts there.

When he returned to Rafael in the early 1990s, Iddan put together a research team to design and manufacture an initial prototype. Successful early research led to the submission of the first of a number of patents on this technology in January 1994. Through a licensing agreement with Rafael, this patent eventually became the basis of Given Imaging's technology.

After developing the capsule prototype, Iddan realized that the future of this technology depended on finding a company interested in carrying on further research and commercializing a product since Rafael, as part of MOD, does not have a mandate to develop in-house civilian applications of its technology. Iddan spoke with several companies and, in 1995, met Gavriel Meron, who was then CEO of Applitec Ltd., an Israeli OEM company that developed and marketed video cameras for endoscopy. Meron admits that, "While I thought that the concept of a swallowable, disposable imaging capsule was great, I was concerned with the many technological risks involved," and he initially passed on the idea.

However, beginning in 1997, several technological breakthroughs occurred that changed Meron's mind. Most significant were the improvements in the area of CMOS (complementary metal oxide silicon) technology that, simply put, meant that all of the camera components of the capsule could be put on a single chip, reducing both its size and power consumption.

Other technology concerns were equally real, but more pedestrian. One major question that skeptics raised was whether the capsule would need windshield wipers to keep the camera lens clear enough of substances in the GI tract to produce high quality images. It turns out that most of the intestinal fluid is transparent and that the body's natural digestive process, peristalsis, eliminated any need for windshield wipers. "We discovered that contact of the capsule with the lining of the small bowel continually cleaned the smooth lens surface as peristalsis moved the capsule through the lumen," Meron points out. Indeed, David Cave points out that "because of the capsule lens' slippery surface, the only thing that actually sticks to it is a blood clot, which is really advantageous because it helps you more precisely determine exactly what you're seeing."

Armed with these new advances, Meron revisited the idea with Iddan and, now convinced of its viability, Meron wrote a business plan and started looking for funding.

"Once we overcame the technology issues, I thought the capsule was a great idea," says Meron. "I'm an economist, so the razor/razorblade model of a disposable capsule and accompanying hardware was particularly attractive to me." He contrasts Given Imaging's business model with his previous experience selling endoscopic video cameras. "If you sell a video camera for endoscopy, it's like selling a television; when you're ready to buy your next television set, you don't even remember where you bought the first one. The company has to start again from scratch every time," he explains. "But with a disposable camera, it's a whole different business model. The potential hockey stick [-shaped graph of] sales potential made this extremely attractive."

What also made capsule endoscopy attractive to Meron is that, if the company could overcome the technology hurdles, the capsule could become one of those win-win devices that is embraced by patients, physicians and payers. The capsule would offer patients a far gentler, more user-friendly diagnostic approach. It could give physicians the diagnostic tool they've been searching for to directly image the small bowel. And for payers, the capsule could provide one test capable of delivering significant diagnostic yield to take the place of numerous current procedures that provide unsatisfying results.

Aware of how these technological advances would help lower the barriers to developing the capsule, in 1997 Meron left Applitec to join the Rafael Development Corp. (RDC), the entity created to commercialize technology coming out of Rafael. (The RDC is owned half by Rafael and half by two of Israel's major private investment firms, the Discount Investment Corp. [DIC] and Elron Electronic Industries Ltd.) Meron joined the RDC with the understanding that his goal was to establish a start-up company to commercialize capsule endoscopy.

In January 1998, Meron founded Given Imaging, the name short for GastroIntestinal Video ENdoscopy, in Yoqneam, Israel (north of Tel Aviv), and became its president and CEO. Initial funding came from the DIC, Elron, and Thermo Electron Corp. Given's technological foundation derives from a technology purchase and license agreement with Rafael under which Given purchased from it for $30,000 all rights to the technology associated with, and the patent issued for, the prototype M2A capsule and system. Rafael retained rights to the technology solely for use in the military and security fields, while Given took sole rights to the commercial development of the technology. Given and Rafael also agreed to grant each other exclusive rights to any improvements to the technology developed by the other party for their respective fields in exchange for royalty payments. In addition to the transfer of Rafael's first patent on the capsule, which Meron says is quite broad and gives the company a strong intellectual property position in this new area, Given has subsequently submitted nearly 50 patents of its own on wireless capsule endoscopy technology.

No Job for Rookies

Gavriel Meron says he knew from the outset that the process of developing the M2A capsule and system and bringing it to market would require an experienced, multi-disciplinary team with expertise in imaging, optics, miniaturization, CMOS video, and software. As part of his due diligence prior to establishing Given, Meron contacted top scientists and engineers in each of those relevant fields to help assess the likelihood of capsule endoscopy becoming reality. "Every one of them told me the same thing," he recalls. "Each expert told me their piece was do-able but that they weren't sure about the others." That was all Meron needed to hear to go ahead with the project.

In assembling Given Imaging's technical team, Meron succeeded in attracting experienced scientific and research talent from a variety of fields, but none had previously worked in life sciences. Skeptics questioned the strategy of not hiring people with medical products industry background, but Meron was confident that, with his experience in the health care industry, he could provide that component, while the others brought the broad range of additional essential skills and experience to the project. The company started in Israel with an R&D staff of 10, which is now up to 40.

While Meron paid a lot of attention to building Given Imaging's team of engineers and scientists, he made sure that the company was primarily market driven. He attributes the failure of many of the initial group of Israeli start-up companies that emerged in the mid-1990s to a common failure in the medical device start-up world, that they concentrated more on the ideas their engineers wanted to develop, rather than asking what the market wants. "Those companies were often vertical in technology and horizontal in markets, where we are exactly the opposite. We're very vertical in our markets," Meron says. Thus, from the outset, Meron's priority has been to contact leading gastroenterologists, who he knew would eventually be his customers if the project succeeded, to make sure everything Given Imaging did was focused on addressing these physicians' needs.

Smile, You're on Candid Capsule

By the end of 1998, Gavriel Meron had assembled Given Imaging's R&D team and work had begun on assembling a prototype capsule and system. At the core of the capsule technology are two proprietary chips, a sensor and an ASIC (application specific integrated circuit) transmitter. The challenge facing Given's researchers in building these chips was the need for miniaturization and low power consumption. "The problem we faced can be compared to that of taking a picture of a darkened garden through the window of a lighted room without the light also illuminating the camera's reflection," Meron explains. Given solved that problem by developing a sensor that requires only a minuscule one milliampere of current.

Miniaturization was another critical issue. The capsule had to be large enough to house the electronics, yet small enough to be easily swallowed and passed through the GI tract. "The goal was that patients not feel discomfort during the examination process," says Meron. The result is the current grape-sized capsule measuring 11mm x 26mm which, he says, patients report being able to pass without any sensation at all.

Another challenge related to miniaturization was figuring out how to connect all of the capsule's component parts. Meron says the company studied every type of wire available before finding one that would work.

Despite its small size, the capsule contains a color video camera, four light sources (illuminating light emitting diodes), a radio transmitter, an antenna, and silver oxide batteries that can power the device for up to eight hours, all encased in a watertight polymer casing that is bite- and acid-resistant. The capsule relies on peristalsis to advance through the GI tract. On average, it takes the capsule approximately 80 minutes to get through the stomach and another 90 minutes to travel through the small bowel, with evacuation times ranging from 10 to 48 hours. Most of the time, the capsule is oriented lengthwise, Meron explains, so most images are of antegrade or retrograde views that are useful to gastroenterologists.

The camera takes and transmits two images every second. With conventional endoscopy, insufflation is used, which is when air is pumped into the intestine to flatten out the lining in order to provide better image quality. But the M2A capsule's optics don't require insufflation. The capsule transmits images to sensors taped around the patient's midsection. The images are stored in a small portable data recorder roughly the size of a Walkman, that the patient wears on a belt. The patient can go about a normal routine, returning the data recorder to the doctor's office after roughly 6-8 hours. The gastroenterologist then downloads the images onto Given's computer workstation, where the physician uses the company's proprietary Rapid Windows-based software system to review them.

Gavriel Meron's instincts, which initially caused him to defer pursuing this opportunity, proved right on. The technology advances that occurred after 1997 in various fields resulted in a remarkably rapid product development timeline, particularly in light of the complex technological challenges inherent in building the capsule and the system. Indeed, Given Imaging started producing prototypes of the device in January 1999.

Seeking Approval

Once Given had built the initial capsule prototypes, Gavriel Meron says his next priority was to begin working with the FDA to educate agency staff on this new device in order to help facilitate its approval. "I went to the FDA [in 1999] two years before we came to them with our 510k submission to let them know what we were going to do, in order to avoid last minute surprises," he explains.

While the capsule is a new approach to endoscopy, Given Imaging was able to reach agreement with the FDA to pursue a 510k regulatory path by using as a predicate device the ingestible Heidelberg capsules that have been used to record gastric pressure and pH levels since the 1950s. "In nearly 50 years, probably close to one million patients have swallowed these capsules without any safety issue, so we were able to use that as a basis for the idea of swallowing an electronic capsule that transmits out of the GI track," Meron explains. The emerging use of endoscopy, which enabled visualization of images from inside the GI track, was also a relevant factor, he adds.

Blair Lewis, MD, a gastroenterologist at New York's Mt. Sinai Hospital, and Given's principal clinical investigator, looked at a cohort of 20 OGIB patients in the company's key clinical trial. Each of these patients had been having bleeding for around three years with blood transfusions of roughly 28 units each during repeated hospitalizations without finding the source of the bleeding. Prior to the clinical trial, these patients had undergone 221 diagnostic procedures, including 78 colonoscopies, 83 gastroscopies, and 22 push enteroscopies, all without arriving at a diagnosis. Using the Given Imaging system, Lewis found the cause of the bleeding in 60% of these patients. The results were so dramatic, Meron points out, that despite the relatively small patient cohort, the FDA provided 510k clearance of the M2A capsule in the summer of 2001 for small bowel diagnosis. (Given Imaging had also received a CE mark for the M2A capsule and system in June 2001.) The company launched the product in both the US and Europe in the fourth quarter of 2001, at the same time as it executed its US IPO.

Following the initial clinical trial, Blair Lewis then did a follow-up study on the same group of patients in which he performed a push enteroscopy on each one. He was able to come up with a diagnosis in 35% of the patients, all of which were among the 60% diagnosed by the capsule. So in effect, not only was the diagnostic yield higher with the M2A, but no additional diagnoses were made by push enteroscopy that were missed by the Given Imaging system.

David Cave, who has done 105 patients with Given's system, has achieved results similar to those of Blair Lewis, reporting a diagnostic yield of approximately 70%. Cave adds, "That doesn't mean that in the other 30% of patients we miss the diagnosis, because sometimes a patient bleeds from a pinpoint source that may not be bleeding at the time, so you're not going to find it. But for the patients who had previously been extensively tested without obtaining a diagnosis, to have a technology that gives you a 70% diagnostic yield is an extraordinary development."

Another way of looking at the diagnostic advantages that the M2A capsule provides is in terms of what Gavriel Meron calls "meaningful negative diagnosis" of the small bowel. When a patient undergoes a sigmoidoscopy, which examines the colon, or a push enteroscopy and is told that nothing was found, that kind of negative diagnosis is not thoroughly meaningful because those procedures do not cover most of the organ they are viewing. "We actually get a 100% diagnostic result for the small bowel, so our 40% negative diagnosis rate is an important result, unlike with other imaging modalities," Meron argues.

Some gastroenterologists question how meaningful Given Imaging's negative diagnosis rate is, however, arguing that since the course of the capsule can't be controlled, it can tumble around and miss lesions or bleeding sources. To address those concerns, Meron points to a study that was done comparing capsule enteroscopy and interoperative endoscopy. In that clinical trial, Given's system was able to locate every potential problem that was located surgically.

While the Given Imaging system has FDA clearance for only small bowel diagnosis, the capsule transmits images from throughout the entire course of the GI tract. Gastroenterologists may therefore make off-label use of images that go beyond the small bowel. According to David Cave, capsule endoscopy will never replace colonoscopy, in large part because of the efficiency of that procedure and the fact that the increased lumen size of the large bowel is not as conducive to the capsule capturing the necessary images as effectively as with an endoscope. Similarly, he says the capsule is not as useful in the esophagus because it passes through so quickly. In the stomach, however, Cave notes that although the capsule can't really get a good view of the entire area, in part because of its cavernous size, "the device captures some images of the stomach that are quite good. But it's usually limited to the exit portion."

The challenges for gastroenterologists using the M2A system are different than those that would normally accompany a more traditional device such as a new-generation endoscope. Whereas physicians must get comfortable manipulating a new—but nonetheless traditional—instrument hands-on, the capsule traverses the GI tract without the need for physician assistance.

Where a learning curve does exist with the Given Imaging system, says David Cave, is when gastroenterologists view the images that the M2A transmits after they're downloaded to the workstation, because the images from the capsule provide different perspectives than physicians are used to from other diagnostic tools. "Reviewing the images is also time consuming: it can take up to one hour per patient and cannot be delegated to a technician or other staff member. Thus, it is important that physicians who use the system understand that and make it a part of their sub-specialty," he adds. "By that I mean that they create time to actually review the images properly because you really can't look at this in five minutes and say ‘I see something or I don't see something.'" Cave believes that, with the help of web-enabled image atlases Given has compiled, gastroenterologists can become comfortable with viewing images from the M2A after approximately 25-50 patients.

Breaking the Drought

As noteworthy as is Given Imaging's technology, and the speed with which the product came to market, many industry executives believe the company's real achievement so far is that, in October 2001, it was able to break a seven-week IPO drought, the longest in nearly 30 years. And to have a medical device company do so, given the general lack of interest the public market has displayed towards this industry in the past few years, is seen as another feather in Given's cap.

Judged by recent trends, the company was at the time hardly the ideal IPO candidate, even within the device industry. "In this market environment, investors are increasingly risk averse, and are focused far more than they used to be on a company's risk profile and not just on the potential upside of a stock," observes Wade King, MD, senior medical technology research analyst at Robertson Stephens. As a result, he suggests, "it's a very short list of pre-revenue companies or companies that are early in their revenue ramp that can go public and be rewarded with healthy valuations." Public investors today tend to prefer companies that are generating revenues and are visibly on the path towards profitability, in addition to having strong management teams and intellectual property positions, as well as products with regulatory approval that are reimbursed. Within the medical device sector, recent IPOs have tended to be for established companies like Wright Medical Group Inc. [See Deal] and American Medical Systems Holdings Inc. [See Deal] that have been part of LBO/roll-up strategies, or a company like TheraSense Inc. [See Deal] with a more established revenue stream.

In addition to the company's early-stage status, there was plenty of additional fodder for industry skeptics who questioned Given Imaging's decision to test the public market in the fall of 2001. (The IPO was announced October 1, 2001.) The lack of innovation in the GI market makes it an unfamiliar area for most investors, and one that has attracted little in terms of investment dollars. Also, traditional thinking says it's easier to bring a device company out that has a therapeutic, as opposed to a diagnostic, product because historically the business models favor therapeutic devices, which are more likely to include a disposable component, while diagnostics have been more of a capital equipment business.

Given Imaging's successful IPO indicates the company was apparently able to dispel most of investors' concerns. "While the market had not seen a company go on the road like Given Imaging, with a newly approved device and no significant revenues, we found investors were very receptive to the company's business model," says Joseph Kohls, SVP of Lehman Brothers' Global Healthcare Group, Given Imaging's lead bank. The reason, he says, is that health care investors primarily want companies with proprietary technologies, high barriers to entry, regulatory approval, large markets, and strong management teams. "Given Imaging met every one of those criteria." Wade King adds that while the fact that there has not been much investment in GI technology may scare off certain investors, it may "prove captivating to others who are drawn to areas where there haven't been a lot of advances and to which a company can bring innovative new technology, especially in an area like GI which represents a large market opportunity," so on the whole, he doesn't see that holding investors back.

Joe Kohls points out that Given Imaging was able to overcome whatever historical reluctance there may be to invest in diagnostic companies by adopting the traditional razor/razorblade model that investors favor, and which is more common to successful therapeutic device companies. "For Given Imaging, the capsule is the razorblade and it has an extremely high margin, making the company's challenge one of increasing utilization, so there was no investor push-back on selling a diagnostic device," he says. Kohls is also of the view that the large potential market for Given Imaging's system is a plus for investors, and further adds that the device's appeal to patients is another important element. "There's the potential for significant patient pull-through here because when a patient becomes aware of this product, they obviously prefer it over the alternative, so they'll go to their doctor and ask for the Given capsule. That kind of patient awareness is the single strongest marketing force you can have," he says.

Cost savings is another issue that investors appeared to appreciate when Given Imaging was out doing its pre-IPO road show. "The fact is that, by using Given's device, you are saving repeat doctors visits and procedures, and can produce a very favorable diagnostic yield, and a cost savings that investors found very attractive," Kohls notes.

Given Imaging's road show itself was almost an obstacle to the IPO as the company and its bankers had returned from their European leg to begin the US portion of the presentation in New York on September 10, 2001. Gavriel Meron recalls being in Delaware on September 11th and hearing of the terrorist attack. Despite the fact that Lehman Brothers was forced to temporarily abandon their offices, the road show was only delayed by approximately one week.

September 11th notwithstanding, the uncertain political situation in the Middle East was another potential investment risk Given Imaging had to address. As part of the company's overall risk management, Given had entered into an agreement with a medical device OEM, Pemstar Inc., to establish an alternative manufacturing facility in Minnesota to produce M2A capsules and the Given Imaging system, and that agreement was included in the company's road show prospectus. When investors questioned how the Mideast situation might impact Given Imaging's manufacturing capability, Kohls recalls that the company was able to satisfy those concerns by demonstrating its capability to maintain full manufacturing capacity through this backup US facility. When asked directly if the current turmoil has disrupted Given Imaging's Israeli operations, Gavriel Meron says, "No, the only disruption is that we're constantly asked that question."

The company ended up going out at $12 per share in an over-subscribed offering that raised $60 million. Given has generally sustained its value post-IPO, except for a brief drop in the stock price in April 2002 that Gavriel Meron attributes to the market over-reacting to the company's announcement of a planned follow-on offering as perhaps being too soon after the IPO. The follow-on offering was withdrawn and the stock price returned to post-IPO levels, selling at around $14 per share at press time.

Getting It Paid For

Given Imaging has accomplished a great deal in its four short years, going from start-up to public company complete with product approvals. When asked where the company's immediate challenges lie, Gavriel Meron points to production, distribution, reimbursement, and future products and features. Given partnered with Pemstar to build the current semi-automated manufacturing facility in Yoqneam that has the capacity to produce 10,000 capsules a month, working two shifts. It is in the process of upgrading its Israeli manufacturing capability to become fully automated, which Meron estimates will be completed by the end of 2002. "A fully automated capability will give us a capacity of about one million capsules a year just from one line, and since production is modular, if we need to increase our output, we can add another line," he explains.

Meron's hope is that Given will never need to utilize the alternate Minnesota Pemstar facility, not simply because to do so may mean there's some type of problem with the Yoqneam plant, but also for financial reasons. Because the company is located in an area of high unemployment, the Israeli government granted Given Imaging approved enterprise status, which essentially gives the company a ten-year abatement from Israel's 36% corporate tax for any production coming out of the Yoqneam facility—status that would not be applicable to products Given makes anywhere else. The Minnesota facility is part of what Meron calls the company's risk management, which essentially cost Given a premium of just under $1 million.

Using a strategy that combines direct sales and distributors, Given is currently selling systems in 33 countries. The company sells direct in the US, based out of the Atlanta suburb of Norcross, where it has more than 50 employees, including more than 20 sales reps. Meron estimates that the US constitutes 30% of the company's worldwide market. Given also has direct selling operations in France and Germany, where the company has located its European hub in Hamburg.

In January 2002, Given Imaging announced an agreement with the Premier Inc. group purchasing organization (GPO) that will potentially bring the company's capsules into the GPO's 1,600 affiliated hospitals. "This gives our sales force the ability to go into those hospitals knowing that the technology has already been evaluated and the price already agreed upon," Meron explains.

The M2A capsule sells for $450, the data recorder for $5,400, and the workstation for $14,5000, bringing the total package into the range of what a gastroenterologist pays for current equipment such as endoscopes, Meron argues. Given reported Q1 2002 revenues of $5.2 million, representing 50% quarter-over-quarter growth. Of current revenues, 39% were derived from workstation sales, 26% from recorder sales, and 35% from disposable (i.e., capsule) sales. These sales are on an installed base of more than 380 systems. Expectations are that by the end of 2002, more than 50% of revenues will come from capsule sales, a figure that may grow to 90% by 2004. Margins, currently at around 52%, are expected to reach 60% by the close of this year.

In May of this year, Given also obtained FDA approval for a next-generation system, the M2A Plus capsule, which adds a positioning/localization component to the system. This enables the gastroenterologist, when reviewing the images on the workstation, to pinpoint the capsule within a few inches of its precise location when transmitting specific images.

The introduction of the M2A Plus capsule with its added localization feature also enables the company to employ a tiered selling approach for markets where a lower cost, no-frills product would be preferred, while also addressing the needs of more sophisticated, less price conscious users. Meron notes that among Given's future products will be improved software utilizing data-mining tools that enable the physician to extract additional diagnostic information from the capsule's images.

Gavriel Meron acknowledges that the most significant challenge facing Given is driving adoption among gastroenterologists, and critical to that mission is ensuring that the cost of the capsule and the procedure are reimbursed. The company uses a consultant-run reimbursement hotline to help physicians work with insurers to process payments that are currently filed under a miscellaneous reimbursement code for the capsule, with the recommendation that physicians get pre-approval for the procedural cost. California Medicare and Anthem Blue Cross and Blue Shield have both recently announced they will cover small bowel capsule enteroscopy, which brings coverage to more than 10 million insured patients in nine states.

As part of the effort to gain increased payer coverage and inform gastroenterologists about the benefits of the capsule procedure, Meron emphasizes that Given has been working with GI thought leaders on a range of clinical trials that have been appearing recently in peer-reviewed journals. The result is that the company was the talk of this year's Digestive Disease Week (DDW) conference, the major clinical gastroenterology meeting, held May 19-22 in San Francisco. At the conference, physicians presented 48 papers reviewing various aspects of capsule enteroscopy. These included the release of data that for the first time showed the capsule procedure to be advantageous in diagnosing Crohn's disease, pediatric cases, and celiac disease.

We Built It; Will They Come?

The fact that Given Imaging's system drew the biggest buzz at the DDW meeting reflects the level of interest gastroenterologists are beginning to show in the capsule technology. Now, the company must convert interest into adoption.

"There was tremendous skepticism early on," recalls David Cave about his colleagues' initial reactions to Given Imaging's system. "But now I'm getting those same, very skeptical surgeons referring patients to me." Surgeons are generally a conservative group by nature, and in the case of gastroenterologists, who have not seen a major diagnostic innovation in 25 years, there is tremendous inertia against new technologies, particularly something as drastic as Given's capsule, which Cave calls "a revolutionary, not evolutionary" technology shift.

Gavriel Meron is confident that Given Imaging's system will, effectively, sell itself to gastroenterologists. "The physicians who criticize the device are those who have not used it. Once they are exposed to the system, it's a different world," he contends.

Given Imaging may indeed represent the first step into a different world. Gavriel Meron explains that the company's long-term objective is to establish Given's system as the first practically non-invasive tool to diagnose problems throughout the entire GI tract. But where Given is heading represents a much larger medical frontier than simply one particular part of the anatomy—nanotechnology.

There has been much talk about the future of nanotechnology in life sciences. Supporters hearken it as the ultimate answer for drug and device development, while skeptics are wary of the hype. Given Imaging's technology may actually represent a more viable form of nanotech, perhaps better termed micro- or mini-technology that represents the logical extension of the minimally-invasive direction in which medicine has been heading, both therapeutically and diagnostically.